Gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU), are struggling. Year-to-date losses for those physically-backed gold products and rival funds exceed 7%.
Last week, gold finished lower, marking its fourth straight weekly loss. On a monthly basis, the situation is more dire as the yellow metal has endured four consecutive months of negative finishes. However, some market observers believe gold can rally before the end of this year.
“Bullion may average $1,260 an ounce in the third quarter and rise further in the following three months as interest rate increases are priced in and physical demand emerges, Marcus Garvey, a London-based commodities strategist at ICBC Standard Bank,” reports Bloomberg.
The strengthening U.S. economy is translating to a stronger dollar, which is often a problem for gold. Gold, like other commodities, is denominated in dollars, meaning it has an inverse relationship to the U.S. currency. Still, there are compelling long-term catalysts for gold.
Looking For Positive Gold Signs
GLD, the world’s largest gold ETF, currently trades about 7.4% below its 200-day moving average and nearly 12% below its 52-week, both of which are considered bearish signs.
“Gold’s appeal has been fading this year with prices sliding near to the key $1,200 level, partly because of an upbeat outlook on the U.S. economy that’s strengthened the dollar,” according to Bloomberg.
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Some gold market observers believe the yellow can firm up and trend higher next year as the dollar retreats. At least one gold bull believes bullion could return to $1,400 for the first time since 2013. The current environment, characterized by economic growth and heightened inflation expectations, provides an ideal backdrop for investors to consider the benefits of real assets.
“There is a risk in the short term for a dip below $1,200 if the current market dynamics persist,” Garvey said on the sidelines of a conference in Kochi, reports Bloomberg. “But looking at the next six months, we are actually around the bottom for this cycle already, so it is more suited in the long term for investors as a decent level for purchasing for their portfolios,” he said.
Investors have pulled $1.62 billion from GLD year-to-date.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.